Abstract

This paper seeks to find out the effect of real interest rate on savings in using time series data from 1970-2013. In line with the objectives and using modern econometric techniques, the study estimates a generic savings model. The study also estimated a dynamic error-correction model following the Engle and Granger method to take care of the nonstationarity of the variables. The results of the study suggest that real interest rate exhibit both short-run and long-run significant positive effect on savings, making it a very important variable for savings mobilization in Ghana. The study recommends that financial policy makers in the country must work hard towards realistic interest rate specifically positive rate in real terms. The central bank authorities must also work hard to reduce inflation to probably single digit on consistent basis since real interest rate levels are affected by inflation.

Item Type:

MPRA Paper

Original Title:

How responsive are private savings to changes in real interest rate in Ghana?